Assignment:
Question 1. If bank A borrows $10 million from bank B, what happens to the reserves in bank A? In the banking system? Please explain.
Question 2. If bank A borrows $10 million from the Fed, what happens to reserves in bank A?. In the banking system? Please explain.
Question 3. Define velocity of money and mention two major determinants of velocity. Assume GDP is currently $240 billion per year and the quantity of money is $40 billion. What is the velocity of money? The nation collectively holds enough money to finance how many days worth of GDP expenditure?